Youre a fraud examiner working for the law firm Knight, Enshine, Ing & Armour representing investors in a class-action lawsuit against Bre-X and others including the CPA firm Knotluk, Eisschut & Ahsleap that performed the annual financial audits for BreX. The law partner handling the lawsuit wants your opinion, as an anti-fraud professional, about this case. Shes concerned that the defense will want to blame the victim saying that investments are always a risk and there are no guaranteed returns. She wants to make the case that investors were duped by BreX either by intentional design or utter irresponsibility.

Your task is to prepare a memo outlining: 1) the key actionsthat could have been taken, by any party (including the Canadian government), to prevent or detect the alleged Bre-X fraud,

2) why should have those actions been taken (how could that have prevented or detected fraud)

3) who should have been responsible for taking these actions. You should be fair and honest in your assessment.

In addition to the information you have from the law firm (pg. 376 in the textbook), a recent Canadian government report provides the following information:

A number of senior Bre-X officials had been investigated previously by U.S. law enforcement and Interpol for a variety of questionable business dealings.

The geologists hired by Bre-X worked for firms with close ties to a former Indonesian government official with ties to organized crime.

The Canadian Stock Exchange listed Bre-X after waiving certain requirements and standards. Canadian securities regulators had not reviewed this because of a case backlog.

Bre-X had refused to share any laboratory, geological, metallurgical or other reports with anyone except for the ones performed on the samples held by Guzman.

Bre-X had not entered into any long-term contracts with mining firms.

This was one in a series of mining scandals in Canada during the past 30 years.

Knotluk, Eisschut & Ahsleap only sent two staffers to Indonesia during the financial audit. Due to the location of the mine, they did make a site visit. Instead, they performed the audit at their hotel. Bre-X provided documentation to them at the hotel and arranged for staff interviews via SKYPE. Neither auditor had any experience in the mining industry, with international projects, did not understand of speak Indonesian (some documents were in Indonesian and English was not the first language for some employees) and had no training in fraud examination.

Note: Keep in mind the Fraud Exposure Rectangle on pg.361 and the Fraud Triangle.